Brent oil slipped below $107 a barrel on Thursday after weak Chinese economic data dimmed the outlook for fuel demand in the world's No. 2 oil consumer and U.S. crude output reached the highest rate in more than two decades.
Oil fell for a second day after figures showed China's manufacturing activity hit an 11-month low in July and its job market weakened, raising concerns of slower demand growth.
At the same time, crude production in top consumer the United States rose to 7.56 million barrels a day, the highest since 1990, according to the U.S. Energy Information Administration. Confirmation of a fall in U.S. oil inventories failed to support prices.
Brent crude eased 14 cents to $107.05 a barrel by 1343 GMT, clawing back from a session low of $106.54. U.S. crude was off 36 cents at $105.03, up from a session low of $104.31.
"China has been and remains the key driver of global oil demand, the dynamism of which has this year been lagging considerably behind the expansion of supply. Weaker demand from China would thus cause the oversupply to increase even further," Carsten Fritsch of Commerzbank said.
"Financial investors clearly see this as an opportunity to grab profits, so the oil price is likely to remain under pressure for the time being."
Investors sold West Texas Intermediate (WTI) crude futures to book profits after Brent's spread to the U.S. crude <CL-LCO1=R> narrowed to parity last Friday.
The spread widened to as much as $2.25 on Thursday.
Investors had poured money into WTI in the past month as they expected new U.S. pipeline capacity to alleviate a Midwest supply glut by moving oil to the Gulf Coast from Cushing, Oklahoma, the delivery point for the U.S. crude contract.
U.S. crude oil stockpiles declined last week for a fourth straight week, EIA data showed on Wednesday, while both gasoline and middle distillate stocks unexpectedly fell, although analysts had expected gains.
U.S. crude inventories fell by just under 30 million barrels over the four weeks to July 19, the biggest four-week decline on records dating back to 1982.